How We Plan to Use Our Financial Windfall

The results are in, and the mystery bonus from our company’s recent buyout is indeed generous. Like, me-laughing-in-my-car-alone-about-how-nuts-it-is generous.

Our previous employer is paying the bonus as a loyalty gift. It is prorated based on years of service, with one month of pay awarded per year spent at the company. The bonus caps out at six months. I had been there a year (to the day!) when the buyout closed, so I will receive an extra month’s pay. Mr. Steward, however, has been at our company seven years. He maxes out the bonus.

While we have been given the total numbers, we still don’t know the exact amount thanks to not being sure what the “other required deductions” are on top of the 25% bonus tax rate. It’s safe to conservatively say that we should net at least $18,000 once the dust settles, though.

For some people, $18,000 is no big deal. For us, that forms an immediate 15% increase in our net worth. That is “significantly alters our financial situation” money. So what are we going to do with it?

Keep Plugging Away at the Same Goals

If we didn’t already have a well-established plan, we’d probably follow the traditional advice on how to handle a windfall. That advice says to sit on the money for 3-6 months while considering all the options. Since our 2017 goals are well-established (we’ve lived with them for a year now, after all!) we feel comfortable moving forward completing those goals.

As a recap, this was the year we intended to remove the $50 per month PMI payment from our house, which we were aggressively working on until an opportunity presented itself to replace Mr. Steward’s somewhat unsafe vehicle. We swapped the goals in July, using the remaining money that would have gone toward the house to buy the van and rapidly repay the loan. We have not regretted the choice, and hope we have set ourselves up to not have to worry about vehicles for several years.

We are especially glad now that the windfall is looming. With the amount we will be given, we can pay off the van and reach the 78% loan-to-value threshold we need to remove the $50 monthly PMI portion of our mortgage payment, completing both goals in 2017.

Aren’t There Better Moves We Could Make?

In the scheme of things, our choices are not the most mathematically optimal. At 3.75% on both the house and vehicle loans, we are paying little interest relative to the average growth of the stock market. We are paying even less on the house when you consider the mortgage interest tax deduction. Nonetheless, we’re sticking with our goals, for two reasons:

First, we dislike debt. Obviously we are willing to use it as a tool, since we took out a loan to buy the van when the opportunity presented itself. But, on principle, we like to drop debt (especially non-mortgage debt) as quickly as possible.

Regardless of whether or not investing in the stock market could earn more, the PMI actively annoys us. Paying for the “privilege” of borrowing money on top of the interest already being paid, particularly when the PMI is not tax-deductible, just feels absurd. We’d pay PMI for the first ten years of our thirty-year mortgage if we stuck to our original loan plan. That makes for $6,000 in PMI alone. If we pay down to the 78% loan-to-value threshold, we’ll have paid about 9 years of our home loan in a little over 2 years. We definitely want to own our home before 2045, so that’s not too shabby.

The second, more important reason we want the auto loan and PMI gone is to have greater monthly cash flow. Completing both goals frees up $250 in our monthly budget. The rapidly impending birth of baby Squidge means that we’ll have double the daycare costs for a couple of years. That, paired with our 2018 goals (a separate post, but, spoiler, they’re basically “invest in all the tax-advantaged things!”) makes for the possibility of being cash-flow poor even as we set ourselves and our children up nicely for the future. We don’t want to invest heavily into our retirement funds but be unable to do basic home repairs or handle a weird spending month without dipping into our emergency fund.

We’ll Wait Until It’s Ours

A surprising number of new cars have already appeared in our work parking lot, considering we do not yet have the cash in hand. The bonus is contingent on employment when the bonuses are paid out in a few weeks, so a small element of risk remains. I worry for the folks who purchased these new vehicles if their employment situation changes.

As silly as these preemptive purchases seem to me, I must confess to my own temptation. We are having ongoing kerfuffles between our bank, who holds our auto loan, and the BMV. Each says the other is responsible for getting the lien placed on the title, and we are constantly running and calling in between. At yet another bank visit last week, it was very tempting to say, “Look, we’re paying this off next month anyway, just transfer the cash over from our savings account and let’s have this done now.”

Frankly, doing so probably would have been fine. Odds are that we’d pay ourselves back in three weeks and I’d save myself the headache of continued wrangling with the two offices. The stakes are too high in the slim chance that it does go wrong, though. Reducing our emergency fund by a third with a baby on the way while the company that employs our entire household goes through a major transition is simply an unnecessary risk. So, I impatiently tap my foot waiting for the checks to post. Sometimes at the BMV.

Have you ever received a financial windfall? How did you handle it? How did you feel after using it?

10 Replies to “How We Plan to Use Our Financial Windfall”

  1. NZ Muse

    That’s awesome! So 7 months pay total?

    I wouldn’t say I’ve ever received a windfall, the closest might be leaving a job and cashing out all my owed holiday pay.

    I don’t normally like to play the what if game, but with $18k I’d allocate a little for a trip (it’s been a while), tackle some house projects, a little into savings/investing and then a hefty chunk off the mortgage.

  2. Ms. Steward

    Yep, 7 months minus 25% taxes and “other deductions.” It’ll likely end up more than 18k, but we wanted to plan conservatively, then be pleasantly surprised.

    You’re right that the “what if” game can be dangerous. I prefer to feel gratitude. Nonetheless, sounds like you’d have “fun” across several different areas!

  3. Mrs. Picky Pincher

    Congrats on your windfall! Your employer is very generous! 🙂 Hey, as long as you don’t blow it on a new yacht, I think you’ll be able to square away your finances well with the windfall.

  4. Leigh

    Usually when I’ve gotten bonuses, the only deductions have been taxes and sometimes 401(k), depending on the bonus’s structure.

    It sounds like you guys have a great plan here! I love that you already had a plan and are just following it – that’s exactly what the plan was for. It must feel great to get rid of PMI! I’m curious to see what your 2018 goals are now 🙂

    My husband thinks we should take out a car loan the next time we buy a car, but I found it so annoying to get the lien taken off last time that I’d rather sell stocks to pay cash.

    • Ms. Steward

      I know 401k is not coming out of it, but I don’t know what the state/local taxes will be (or what “other deductions” there are).

      I’m excited to share our 2018 goals! We have a lot of balls in the air right now, between the completion of these goals and seeing the exact impact of baby 2 on the budget (plus any possible complications), and whether or not we get raises/promotions and to what degree this year before we know exactly what all we will be able to accomplish, though.

      I am glad for our auto loan, and that it enabled us to take advantage of the opportunity we did. I would ideally like to pay cash next time, but I don’t know how prepared we will actually end up being, since realistically we want to drive these cars for another 5-10 years, at least. Other goals seem more pressing, and since we have (historically) paid off the car loans really rapidly, it’s hard to justify doing it differently. If we had a taxable account, we’d pay cash, though. And yes, the whole lien process is really, really obnoxious.

  5. Jing

    Wow, I’m totally surprised by your coworkers buying the new cars! I guess I’ve never thought about what I would do with a windfall…I sort of assumed I would just invest/save it, but now that I’m actually *visualizing* a windfall, I have to say, I’d probably be tempted to splurge on a trip! This is probably the most helpful time to have financial goals actually written on paper so you can’t “cheat” yourself out of doing the right thing 🙂

    • Ms. Steward

      For us, our big trip for next year is a trip to Boston/Cape for a wedding that we already have mostly planned (I hope to travel hack us most of the way there). Plus two small kids means travel is less exciting for us right now, until they are older. 😉

  6. Shelley

    That’s pretty generous of your employer. Well done them. I’ve had a couple of ‘windfalls’. One was an insurance pay out when we’d been in a car crash. It was about $6,000 (back in about 1979? I was in my early 20s). My grandmother was selling her house and all her furniture to move in with my Mom. I bought her living and dining room furniture plus a couple of other pieces for $4,000, which we figured was better than she’d get from anyone else. This was reproduction Duncan Phyfe in mahogany from the 1940s. I still own it and always will. Another windfall was a $13,000 inheritance to a cousin I never knew I had who died without a will and had a big house in California. I paid down my mortgage with it, never thought of doing anything else. I paid off this house in 8 years and was able to retire a few years later.

    • Ms. Steward

      They’ve been a great place to work!

      The furniture sounds beautiful! And what a great story behind it!

      I love that your other windfall allowed you to retire without having a looming mortgage. That’s what you want from a windfall!

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